Abstract

http://ssrn.com/abstract=1667035
 
 

References (21)



 
 

Citations (5)



 


 



Labor Unemployment Risk and Corporate Financing Decisions


Ashwini K. Agrawal


New York University (NYU) - Department of Finance

David A. Matsa


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

February 13, 2013

Journal of Financial Economics (JFE), Forthcoming
NYU Working Paper No. FIN-10-010

Abstract:     
This paper presents evidence that firms choose conservative financial policies partly to mitigate workers’ exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be about 60 basis points of firm value for a typical BBB-rated firm. The findings suggest that labor market frictions have a significant impact on corporate financing decisions.

Number of Pages in PDF File: 58

Keywords: capital structure, financial distress, unemployment risk, compensating wage differentials

JEL Classification: G32, G33, J31, J65

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Date posted: August 29, 2010 ; Last revised: February 18, 2013

Suggested Citation

Agrawal, Ashwini K. and Matsa, David A., Labor Unemployment Risk and Corporate Financing Decisions (February 13, 2013). Journal of Financial Economics (JFE), Forthcoming; NYU Working Paper No. FIN-10-010. Available at SSRN: http://ssrn.com/abstract=1667035 or http://dx.doi.org/10.2139/ssrn.1667035

Contact Information

Ashwini K. Agrawal
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
David A. Matsa (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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